<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> Hua Hong Semiconductor's estimated fair value is HK$58.62 based on 2 Stage Free Cash Flow to Equity </li> <li> Hua Hong Semiconductor's HK$71.45 share price signals that it might be 22% overvalued </li> <li>  The US$75.92 analyst price target for 1347 is 30% more than our estimate of fair value </li> </ul><p>In this article we are going to estimate the intrinsic value of Hua Hong Semiconductor Limited (HKG:1347) by taking the expected future cash flows and discounting them to today's value.  This will be done using the Discounted Cash Flow (DCF) model.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. </p><p>AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.</p><h2> What's The Estimated Valuation? </h2> <p> We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase.  To start off with, we need to estimate the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  so we need to discount the sum of these future cash flows to arrive at a present value estimate: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF ($, Millions) </strong></td><td>-US$909.3m</td><td>-US$800.1m</td><td>US$343.0m</td><td>US$702.0m</td><td>US$1.02b</td><td>US$1.35b</td><td>US$1.67b</td><td>US$1.96b</td><td>US$2.21b</td><td>US$2.43b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x9</td><td>Analyst x7</td><td>Analyst x1</td><td>Analyst x1</td><td>Est @ 45.12%</td><td>Est @ 32.43%</td><td>Est @ 23.55%</td><td>Est @ 17.33%</td><td>Est @ 12.98%</td><td>Est @ 9.93%</td></tr><tr><td><strong> Present Value ($, Millions) Discounted @ 12% </strong></td><td>-US$814</td><td>-US$642</td><td>US$246</td><td>US$452</td><td>US$587</td><td>US$696</td><td>US$770</td><td>US$809</td><td>US$819</td><td>US$806</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = US$3.7b</p><p> We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.8%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 12%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = US$2.4b× (1 + 2.8%) ÷ (12%– 2.8%) = US$28b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= US$28b÷ ( 1 + 12%)<sup>10</sup>= US$9.4b</p><p> The total value, or equity value, is then the sum of the present value of the future cash flows,  which in this case is US$13b.  The last step is to then divide the equity value by the number of shares outstanding.  Compared to the current share price of HK$71.5, the company appears   slightly overvalued    at the time of writing.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/23904081-dcf-1-dark-2/1766967321229?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/23904081-dcf-1-dark-2/1766967321229"/><figcaption>SEHK:1347 Discounted Cash Flow December 29th 2025</figcaption></figure> <h2> The Assumptions </h2><p> Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Hua Hong Semiconductor as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 12%, which is based on a levered beta of 1.685. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. </p> <p><span> Check out our latest analysis for Hua Hong Semiconductor </span></p><h3>SWOT Analysis for Hua Hong Semiconductor</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is not viewed as a risk.</li></ul> <ul>Balance sheet summary for 1347.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Earnings declined over the past year.</li></ul> <ul><li>Expensive based on P/S ratio and estimated fair value.</li></ul> </div><div><p><strong>Opportunity</strong></p><ul><li>Annual earnings are forecast to grow faster than the Hong Kong market.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Revenue is forecast to grow slower than 20% per year.</li></ul> <ul> What else are analysts forecasting for 1347?</ul> </div></div><h2> Looking Ahead: </h2><p> Whilst important, the DCF calculation  shouldn't be the only metric you look at when researching a company.  DCF models are not the be-all and end-all of investment valuation.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Can we work out why the company is trading at a premium to intrinsic value?   For Hua Hong Semiconductor, we've put together three  pertinent  factors  you should explore: </p><ol> <li> <strong>Risks</strong>: For example, we've discovered <strong>3 warning signs for Hua Hong Semiconductor</strong> (1 makes us a bit uncomfortable!) that you should be aware of before investing here. </li> <li><strong>Future Earnings</strong>: How does 1347's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.</li><li> <strong>Other Solid Businesses</strong>: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! </li> </ol><p> PS. Simply Wall St updates its DCF calculation for every Hong Kong stock every day, so if you want to find the intrinsic value of any other stock just search here.</p><div><p>Mobile Infrastructure for Defense and Disaster</p><p>The next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.</p><p>Get the investor briefing before the next round of contracts</p><p><span>Sponsored On Behalf of CiTech</span></p></div></div></div>

01347

688347

<p>Hua Hong Semiconductor Limited (HKG:1347) is estimated to have a fair value of HK$58.62, but its current share price is HK$71.45, suggesting it may be 22% overvalued. Analysts have a price target of US$75.92, 30% above the estimated fair value. The intrinsic value is calculated using a 2-stage DCF model, considering future cash flows and terminal value, resulting in an equity value of US$13b. The analysis highlights the importance of assumptions in DCF calculations.</p>

Are Hua Hong Semiconductor Limited (HKG:1347) Investors Paying Above The Intrinsic Value?